Mario Christodoulou, Accountancy Age, Monday 19 July 2010 at 16:39:00

?There is increasing evidence that fees are being forced dow, auditor warns


Cost pressure and competition are encouraging auditors to ?cut corners?, asenior audit head has warned.

Jeremy Newman, CEO of BDO Global, warned of ?extreme downward pressure onfees? which is threatening the quality of audits and encouraging auditors to cutcorners.

?There is increasing evidence that fees are being forced down to such anextent that one worries this will encourage audit firms to ?cut corners? toreduce their own costs and thereby reduce audit quality,? he said in his blog.

?I am concerned about the potential effect on audit quality. I am concernedabout the effect this will have in enabling us to continue to attract highquality, committed people to the profession. And I am also concerned at whatthis phenomenon says about the operation of the audit market and the extent towhich it is a free market.?

Newman cited the Australian Securities and Investments Commission and theCanadian Public Accountability Board, which have both expressed concerns on thesubject.

He said while there is ?no doubt? the overall level of demand for auditservices has reduced, the decline should be offset by additional regulation,changing accounting standards and the need for quality audits.

?Capacity has also fallen due to lower recruitment levels and staffredundancies and, in my view, in most cases by more than the fall in demand foraudit services,? he said.

?In these circumstances, according to elementary economic theory pricesshould, if anything, rise. Yet this is not happening ? and fees ? are falling.?

Further reading:

Don'tblame the standards, says BDO chief

JeremyNewman Blog: A BIZARRE MARKET